Annexure II - AERA

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NERA Economic Consulti ng 4. Conclusions The international evidence on land used for non aeron autical activities varies across jurisdictions as a single rule does not apply. The use of land for non-aeronautical activities comprises a variety of commercial activities like retail shops, car parking and real estate development. The real estate development is defined as the development and management of different kind of airport areas, for example hotels, conference centers and shopping malls. When a dual till regulation is applied, non-aeronautical activities are excluded from regulation, whereas when a single till regulation is applied, in many instances the regulation allows some non aeronautical activities to be excluded from the regulatory till. In cases where a hybrid till regulation applies, only some non-aeronautical activities are included in the regulatory till and only part of their profits is included in the till. Another issue we have examined is the treatment of surplus airport land, i.e. land in excess to what is needed for aeronautical use. This land, in some instances, can be sold and the airport operator can retain all revenues. In the case of HIAL we have pointed out that the airport has been privatized in 2004 on the basis of a Concession Agreement. Our understanding, in the light of the explanations provided to us by GMR and after studying such agreements, is that HIAL has been privatized under a dual till regulation, where revenues of non aeronautical assets do not contribute to remunerate aeronautical costs. The international evidence examined shows that revenues from land used for non commercial activities have to be treated according to the regulatory regime which has been established at privatization. Furthermore, revenues of land disposal should be treated according to such regulation. Revenues from sale of non aeronautical assets should be for the benefit of the airport and should not be used to reduce aeronautical costs. As AERA has pointed out in Order No. 13/20 I0-11, the asset value monetization can be substantiated in a number of different ways (outright sale 'with or without restrictions on further transfer by the lessee, premium lease or lease rental, deposits or a combination of all these form, etc) ." As a consequence, the same principles which apply to land sales should apply to the other forms of alienating land. 19 See article 7.5.1 of Order No. 13/20I0-11 issued by AERA. whi ch states . "Authority is also aware of the different forms of alienating ofland by the owner/lessor to actual users (generally lessee s). like outright sale 'with or without restrictions on further transfer by the lessee, premium lease or lease rental. deposits or a combination ofal/ these forms. It Is also not feasible to contemplate, exhaustively, all such forms as may be devised for purpos es of operational flexibility by the Airport Operator. Such forms change the nature,and sometimes the quentum of the receipts from land exploitation, i.e whether they are to be regarded as capital 12 Annexure II-B CP No. 9/2013-14/T-12023(14)/1/2012- Tariff- Vol - III Annexure II-B Page 50 of 51
NERA Economic Consulting The price paid by investors at privatization reflec ted the regulatory principles identified in the agreements at that time. The HIAL Concession Agreement provides that the airport operator has to pay an annual fee to the government as a percentage of gross revenues. This percentage is 4% for HIAL. Thus, the price paid at the time of the privatization takes into consideration also the value of the land implicit in the annual fee paid by the airport to the government. Such land can be used for both aeronautical and non aeronautical activities according to the location and the design of the airport. In the "The Airports Economic Regulatory Authority ofIndia Act , 2008" AERA prescribes that regulation has to be consistent with the principles that govern privatisation. 20 Therefore, the AERA argument expressed in the Order No. 13/2010-11 (and reported in the introduction of this memorandum) flaws in many respects. It is not true that land has been "given free or on highly concessional terms by the government to the airport operator", since at the moment of the privatization the bidders knew that they would have paid a significant annual fee on gross revenues. 21 The land has been paid by taking into account future annual fees . Investors will be able to have a proper remuneration on their investment only if land will be monetized according to what promised at privatization. receipts or revenue receipts. Moreover, the Airport Operator, for reasons of flexibility In operations, may alienate only land, or construct asset thereon and alienate land along wIth the asset In different forms indicated above. Additionally the nature ofthese receipts shills from one to s nothet", 20 AERA (200 8), The Airports Economic Regulatory Authority ofIndia Act, 2008. 21 See article 7.5.1 of Order No. 13120 I0-1 I issued by AERA 13 Annexure II-B CP No. 9/2013-14/T-12023(14)/1/2012- Tariff- Vol - III Annexure II-B Page 51 of 51
Page 1 and 2: Annexure II-B CP No. 9/2013-14/T-12
Page 3 and 4: ("Authority") was established on iz
Page 5 and 6: As already mentioned earlier, MoCA
Page 7 and 8: Conclusion: The Concession Agreemen
Page 9 and 10: a. Land LeaseAgreement As per Claus
Page 11 and 12: derive any material commercial adva
Page 13 and 14: Regulatory Approaches in Selected C
Page 15: The summary of such analysis is rep
Page 20 and 21: NER A Economic Consulting "Given th
Page 22 and 23: NERA EC() 110 n 11C CO I1
Page 24 and 25: NERA Economic Consul!inS1 In other
Page 26: NERA Economic Consult ing 5. Conclu
Page 29: NERA t:COIIOlJ1IC COllsul:in9 activ
Page 33 and 34: NERA tC Oll 0 rn ic ConsulU nq B.5.
Page 35 and 36: NERA Ecol1omi c Consulung • A dua
Page 38 and 39: NERA Economic Consultinq • Real e
Page 40 and 41: NERA Economic Consulting only at th
Page 42 and 43: NERA Economic Consulting Table 2.1
Page 44 and 45: NERA Economic Consulting 2.5. Germa
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Page 48 and 49: NERA Economic Consulting industrial

Annexure II - AERA

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